Doing social business right – the need for social business models
Organizing a social enterprise is more a question of generating social impact than income, which puts it at odds with the standard idea of doing business. Therefore, social entrepreneurship needs a business strategy that goes further than making a profit. Looking at four cases of social businesses using a Social Business Model Canvas, their strengths and weaknesses become apparent. It also reveals the emerging opportunities and dangers new social enterprises may face, showing that social enterprises may need to become even more transparent as well as consider broadening their social impact.
Although generating revenue is an important goal for social enterprises, their social impact takes greater priority. Where businesses make use of business models to capture their organizational activities and strategies,1 social entrepreneurs need integrated social business models to clarify how social and financial value is created and captured. Working with such models can help them ensure that they do not fall into the trap of drifting away from their social mission when the financial pressure is high. The models can also generate insights into growth strategies. However, there is currently very limited research in this area and no tools yet exist to look at the social business model.
The Social Business Model Canvas
The rise of design methods in the support of ventures and in specific business models has been welcomed by entrepreneurs, as they no longer have to cope with long, text-heavy planning exercises. One of these models is the Business Model Canvas (BMC),2 a method used to obtain a clear overview of key aspects of an enterprise’s operations and structure. This article will use the building blocks of BMC to understand a social business model. Building on existing cases, the objective is to outline the lessons learned and offer a first attempt to guide social entrepreneurs.
In one glance, the BMC offers a good overview and the means to compare the value being created and the operational structure of a company on a more abstract level. However, the BMC is limited by being focused only on commercial values and maximizing profit instead of creating social value. By exploring existing business models of social entrepreneurs,3 and by using the BMC to frame a number of cases, a first attempt is made to understand the practice of social entrepreneurship further.
The building blocks of this social business model are laid out here in an existing ‘experimental model canvas’, upon which this article will build.4 The value proposition is the first and most important aspect of the model, describing products and services that create value for a specific customer. It describes what social needs are being satisfied. By expanding the focus to social value creation, it describes the strategy to generate social impact, and the canvas now becomes suitable for a social enterprise. By adding social impact measurement to the social value creation block, social value becomes a matter of outcome that the company can measure.
Secondly, and just as important as the social value proposition, is the financial building block which shows how the social enterprise generates revenue. Next to cost and revenue flows is a section on how the social enterprise reinvests its surplus revenue.
The third set of blocks describes the market segment of the enterprise, including the customer segment, such as the target group the social enterprise wants to reach, the challenges in the environment and its competitors. This aspect of a social business is similar to traditional business, with the underlying difference being that a social business’s goal is to serve clients’ social needs, rather than treat them as the means to make a profit.
Finally, the implementation process is captured by the building blocks to describe the delivery process, including the activities and resources needed to deliver the product/service, the necessary partners and marketing and sales.
Exploring the successes
The social business model canvas (SBMC) will be tested by using four fairly well known cases of social entrepreneurs. Their organizational structures can illustrate what a social business is achieving, and more importantly, how it is being done and what challenges are being encountered. This article looks at Fairphone,5 Peerby,6 WakaWaka,7 and Women on Wings8 to understand how they organize their social businesses to ensure social impact. They all cover a wide range of possible ways of making social impact.
Some of the selected cases are working in specific regions of the world, such as Women on Wings in India. Meanwhile others are combining the developed with the developing world by creating value for both with a single product, such as with WakaWaka. Another organization, Fairphone, focuses on its product within the developed world market while ensuring proper ethical conditions are met in the developing world where the product is produced. The fourth example of Peerby shows how a social business can act to disrupt standard product sales while bringing neighbours together locally. So, what lessons can we draw from their business models?
These four case studies of social business models are shown in the infographic. They are businesses that either add social products or services that were not yet present in the markets they serve on such a scale, or which work in existing and well established markets but are making their production and delivery processes more environmentally friendly and fair.
Looking more in depth at how they build their social business, some interesting observations and analyses can be made if we focus on the social value propositions – the first building block of the SBMC. Then, leading on from the proposition, we can further explore ways of looking at the financial value, market and delivering the proposition – the other building blocks.
First building block: social value proposition
First, social enterprises identify a social problem that needs to be solved. Most social businesses address multiple problems in their business models. The main problems Peerby identified, for example, were the lack of human connectivity in neighbourhoods, and the absurdity of everyone owning the same tools which they often used only once a year, while resources are being depleted to continue to make new ones. Peerby came up with a value proposition: a neighbourhood lending system for materials like drills and ladders that people do not use very often. Similarly, WakaWaka focused on bringing reliable and clean light to remote areas, combining this with the demand for solar charging lights in developed countries. Both examples addressed different problems with one solution: their product or service, which makes up their value propositions. Women on Wings has a clear value proposition of providing one million jobs for women in India, while Fairphone has a clear mission to make the resource market for phone parts more transparent and humane.
Second building block: financial values
For social businesses, income is required to sustain the social objective. The different social propositions are integrated with a financial value to varying degrees. WakaWaka, for example, sells the solar charger for a higher unit price in developed countries. Because the combination of a good solar charger and a contribution to education in the developing world is worth paying for, the revenue flow is fluid and the same solar light can be offered at a lower price in developing countries.
For Peerby and Women on Wings, the financial model is integrated in the core, but it is less apparent and viable. Women on Wings generates revenue from consulting and partnership fees. The women-led or staffed businesses they set up or help grow pay low partnership fees, which Women on Wings use to cover their organizational costs. Peerby is experimenting with charging a small percentage for each lending transaction. Both companies raised funds through non-profit channels to start with, either through grants (from Stichting DOEN in the case of Peerby)9, or through sponsoring. As costs remain low, these models can support the enterprise in the short term, but in the case of long term existence or growth, they will require mixed and more sustained revenue flows to prosper. For growth, this could mean that they find patient investors, more funds or grants, or try crowd funding, as they do not have a financial buffer to invest in scaling opportunities themselves.
Social businesses can remain competitive in the normal commercial market because of the low to medium revenue flows they impose on themselves, which should balance out with the higher costs of focusing on social impact (higher wages, higher costs in the supply chain, etc.). This however raises an important question, which applies to all social businesses: how scalable will their models become with the built-in limitations of limited and insecure profits? In the light of the financial successes of social businesses like WakaWaka, which pre-sold over 50, 000 lights, expanded sales to 70 countries and funded 70 schooling projects, the prospects might seem hopeful.
Third building block: Exploring markets
Social enterprises are not only innovative in how they blend social and financial values but also in how they organize production and delivery to the markets for these values. Therefore, the SBMC has a special building block which focuses on market conditions. It ensures that social entrepreneurs look critically at how to engage with consumers. It also examines the economic, social and technological changes that take place and affect the market now and in the future. This building block also looks at the competitors. It is interesting to highlight the double market focus adopted by WakaWaka and Peerby to achieve their social missions. WakaWaka focuses on both the developing and the developed world, while Peerby addresses both lenders and borrowers. These different ways of delivering value can be categorized as either ‘creating’ or ‘sharing’ economies.10
Fourth building block: Delivery process
Creating material value in such a way that it focuses on the maximum usage of these materials, often referred to as a ‘circular economy’, is a system designed to maximize the usability of products and resources and minimize value loss.11 Fairphone is a good example of a product designed according to these principles. The phone has been produced in collaboration with fair trade partners, the partner building block of the SBMC, to ensure that the exact origins of the components are known and that a fair price has been paid for them. Also, the phone has been designed so that the materials can easily be recovered and recycled, creating supply circles instead of supply chains. For the consumer, an added service has been created to replace certain parts of the phone, so that they do not have to buy a new one when it breaks down. These user-friendly products and services are part of the delivery process to achieve the organization’s social value proposition.
The WakaWaka delivery process is perhaps less complex but worth mentioning, as the main activity was to design a reliable solar power light and charger. Therefore, it is important to ask how the light is produced and delivered. WakaWaka does not yet address this aspect, according to the research done for this article. In the worst case scenario, by not addressing this within the business model, social entrepreneurs run the risk of marketing products that were unsustainably resourced and produced in unethical working conditions. Solutions are perhaps not available or affordable, but being transparent and showing the intention to work towards this should be a mission of a social business and also made explicit in both the value proposition block and the method of delivery of the SBMC.
Sharing goods, ideas and knowledge instead of creating new goods is an old custom, but is often not yet organized on a scale to benefit a social purpose for many. Possessing goods is no longer a main objective for many people. Peerby facilitated its platform to achieve exactly this; its user friendliness and inviting approach has encouraged many people to become lenders or borrowers. Peerby’s marketing mission is to create a critical mass to reach ever more lenders and borrowers in order to scale up.
Women on Wings delivers its value proposition by setting up different activities and personal contacts with partners in their network to facilitate knowledge exchange. The organization of the different partnerships is complex in nature mainly because of the scale – focusing and relying on volunteers and partners to benefit social business development in India. A question which is left unanswered focuses on the partner building block – namely, based on what criteria are partners selected as experts to support Women on Wings? Are they social businesses or is helping Women on Wings merely a social add-on to their own business strategy?
Some other questions about social value creation remain unanswered within the delivery process: where and how does WakaWaka produce its solar lights; what are Women on Wings’ air travel expenses for delivering their services, and how does Fairphone arrange the transport and assembly of its phone parts? Social enterprises should be aware of their social impacts at all levels and integrate them in the business model, and decide how they want to deal with it. It may not be necessary in the short term, but there must be a clear strategy for how they are going to work on these issues within their delivery process in the long term – an important building block each social business should consider.
Indirect values and direct markets
The SBMC is of added value in ascertaining the larger picture of whether a social need is being addressed and what financial model it encompasses, but it is also useful for looking at the ways the social value is being captured, and for whom. Most social businesses address a need, but it can be questioned whether the delivery process is being openly and ambitiously addressed, as would be expected of social entrepreneurs. Are they adequately looking at the delivery and taking into account the environmental and social needs that are part of this crucial process? The SBMC can be a tool to promote this broader and more systematic approach to look further than the focused needs to deliver just a single, local impact. In the article, ‘The emerging social enterprise’, this element has been addressed, i.e. shifting from addressing social impact to being a change agent. Therefore, encouraging social enterprises to offer better alternatives to products and services is key, but also pushing this movement towards an even more transparent and broader impact generating enterprise is critical.
To bring this subject further, we need to understand the social value measurement as a fixed part of the operations of social business. This means that next to the financial health of a company, clear goals on social impacts reached should also be made quantifiable, or at least more measurable. In this way, not only can financial income be judged critically, but also social impact and the delivery process can be measured and held to account.
Jan Jonkers, Professor Corporate Sustainability at the University of Nijmegen.
Nicole Verhoeven, Co-founder and programme director of social entrepreneurship at Amsterdam Center for Entrepreneurship.
Gerd Junne, Chairman of the board of The Network University (TNU).
- Zott, C., Amit, R., & Massa, L. (2010). The business model: Theoretical roots, recent developments, and future research.
- Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries, game changers, and challengers. Wiley. com.
- Mohammed Yunus has explored the social business model of the Grameen bank in: M. Junus, B. Moingeon & L. Lehmann-Ortega, 2010, Building Social Business Models: Lessons from the Grameen Experience, Long Range Planning 43 (2010) 308-325
- Fairphone is a smartphone, which is designed and produced by putting people and the environment first. Fairphone’s team studied the complexity of the supply chain for mobile phone parts over a three-year period., With a deep understanding of the system, they took the first steps towards systemic changes in the value chain of mobile phone production, making the resource market for phone parts more transparent and humane. Fairphone’s first handset contains conflict-free minerals, including tin and coltan from the Democratic Republic of Congo, and was made in a factory where a specially established fund will ensure decent wages for the workers, that is double the normal wage for this job. Fairphone is providing transparency about its material costs, its cost breakdown and its first hand material suppliers. This model works on the growing consumer demand for responsible and fairly produced products. The pre-order of the phone has been successfully crowd funded and the first phone is expected to appear at the end of October 2013.
- Peerby is a peer-to-peer lending platform in the Netherlands, which stimulates neighbourhood contacts by enabling people in a community to share tools, equipment, and machinery, thereby decreasing the need to produce new ones. Via Peerby, anyone can borrow and share items with their neighbours, which in turn also encourages social contact. Peerby’s success lies in its proactive attitude: people don’t just post the item they are looking for; the site asks the 100 closest Peerby neighbours if they have the item. The lenders are permitted to pick a fair price for lending the tools and Peerby lives from a small margin from this price.
- WakaWaka developed an off-grid, high-quality solar light for people living without or with unsafe lights. The target populations are generally in ‘bottom of the pyramid’ situations earning less than $2 a day. The WakaWaka light is notprovided for free, but is offered at an affordable price and is made available to those in need of safe and long-lasting lighting. What sets the WakaWaka light apart is that the same product is also sold in Western markets, where people need of a good solar charger. Profits from the lights are reinvested in educational programmes for those unable to afford schooling in developing countries. After completing a special education programme, students are able to purchase their own WakaWaka light at low prices. Therefore, a so-called ’Robin-Hood-pricing policy’ is used, with a lower price being asked for the same device in developing countries. The purpose of this business model is that, by securing a market in developed countries, lighting can then be provided to students in developing countries which will further promote education, allowing study when it is dark, and improve working and general livelihood conditions.
- Women on Wings’ founders developed their very own business model with the ambitious social goal to provide jobs for 1 million women in India by 2018. Currently, over 95, 000 jobs have been secured. The company uses 50 business experts who share their experience and knowledge with 19 Indian companies. (Information comes from an interview of Anja Cheriakova with Woman on Wings in September 2013.) The experts search for suitable and realistic business models alongside various local parties. They then help establish or improve the necessary business infrastructure and supervise or train team members with the ultimate goal of supporting social enterprises in rural and developing India, providing income generation and as many jobs as possible for women in the immediate surroundings. The defining characteristics of the Women on Wings social business model include connecting business experts from the developed countries and local specialists with women who want to work, but lack knowledge and networks. These partnerships result in income for Women on Wings, ensuring its financial sustainability.
- J. Jonker, Nieuwe Business Modellen, 2013, working paper.
- Circular economy is a radically different business model from the linear one we are used to, and a compelling concept. Keeping resources in the economy for longer means diverting valuable materials from landfills and reducing the energy, land and water necessary for primary production. Along with the obvious environmental benefits, the circular economy model can create new job opportunities and generate economic growth. The numbers are staggering. Defra estimates that UK businesses could save up to £23 billion each year through low cost or no cost improvements in the efficient use of resources, while a report from The Ellen MacArthur Foundation estimates a worldwide move to a circular economy could result in $700 billion worth of savings in consumer goods materials alone.